PDF《Luenmei Quantum》

Stock Connect C H I N A S E C U R I T I E S ( I N T '

L ) R E S E A R C H Please read the disclaimer on the last page.

[table_main] 公司深度模板 Equity Research ・ Company Power and Gas Breaking into renewable energy heating Opens up new avenues of growth. Luenmei Quantum, a heat supply specialist, bought out rivals Guohui New Energy and Shenyang Xinbei Thermoelectric in 2015, and in so doing, expands its heat supply area from 19.8mn sq. m to 40mn sq. m and branches out into clean and renewable cogeneration and engineering. Revenues and profits buoyed by M&

A. Heat supply/heat network connection used to account for above 70%/20% of Luenmei Quantum'

s annual revenue, which grew at a CAGR of 16.89% from RMB406mn in

2011 to RMB758mn in 2015, and jumped 16% YoY to RMB2.044bn in

2016 after integration of the acquired assets, continuing the momentum into the first three quarters of 2017, up 18.87% YoY at RMB1.338bn. Accordingly, net profit attributable to the parent climbed from RMB82mn in

2011 to RMB177mn in 2015Calbeit with slowing growthCand surged 52.00% YoY to RMB699mn in

2016 before further leaping 56.83% YoY to RMB467mn in 1Q-3Q17, significantly boosted by high margin new businesses. Strong balance sheet. Luenmei Quantum boasts a long-term record of consistent, above-average results, maintaining positive operating revenue/net profit growth rates during the 2011-2016 period, a rarity in the industry. The company'

s

2016 gross margin/net profit margin/ROE stood at 46.62%/35.01%/28.17%, far outperforming its peers. Selling/Administrative/Financial/Period expense ratio came in relatively low compared to its competitors'

at 0.04%/6.50%/-5.50%/1.04% for the first three quarters of 2017, exhibiting effective cost control. Earnings forecast. We estimate Luenmei Quantum to realize operating revenue of RMB2.726bn/3.285bn/3.764bn for 2017-2019, corresponding to RMB902mn/1.133bn/1.281bn in net profit attributable to the parent, and EPS of RMB1.33/1.67/1.88. Initiate coverage with Buy. [table_invest]

600167 Rating Buy Issuing analyst: Steven Liu, CFA, PhD, (CE No.: AMO971) [email protected] +852

3465 5652 Date:

8 January

2018 Share prices performance [table_industrytrend] -2% 8% 18% 28% 38% 48% 58% 16/11/9 16/12/9 17/1/9 17/2/9 17/3/9 17/4/9 17/5/9 17/6/9 17/7/9 17/8/9 17/9/9 17/10/9 联美控股 沪深300 [table_stkcode] Luenmei Quantum (600167:CH) Listed company in-depth [table_page] Luenmei Quantum Please read the disclaimer on the last page. Contents A heat supply specialist

3 Company history.3 Revenues and profits significantly up thanks to M&

A.4 Bright prospects for both new and old-line businesses.5 Higher growth opportunities for heat supply as district heating ramps up.5 New business potential to be fully unlocked.7 Heat supply area set to cross 100mn sq. m.9 Diversifying towards clean and renewable heating.9 Dual growth engines guarantee sustainable development.11 Heat supply: powering on.11 Clean energy: huge promise

12 Upping the game

13 M&

A and private placement.13 Shoring up finances

15 Headline performance benchmarking.15 Earnings forecast.19 Risk factors.19 Listed company in-depth [table_page] Luenmei Quantum Please read the disclaimer on the last page. A heat supply specialist Company history Luenmei Quantum Co., Ltd., founded and listed in 1999, is primarily engaged in providing heat supply services in Hunnan, Shenyang (Liaoning). Figure 1: Luenmei Quantum'

s history Source: company announcements, Research Dept, CSCI In 2015, Luenmei Quantum bought out rivals Guohui New Energy and Shenyang Xinbei Thermoelectric through a private placement to their parents Lianzhong New Energy and Luenmei Group, and in so doing, expanded its heat supply area from 19.8mn sq. m to 40mn sq. m. Figure 2: Shareholding changes C Luenmei Quantum Source: company announcements, Research Dept, CSCI Listed company in-depth [table_page] Luenmei Quantum Please read the disclaimer on the last page. Revenues and profits significantly up thanks to M&

A Heat supply/heat network connection used to account for above 70%/20% of Luenmei Quantum'

s total revenue, which grew at a CAGR of 16.89% from RMB406mn in

2011 to RMB758mn in 2015, and then jumped 16% YoY to RMB2.044bn in

2016 after the integration of Guohui New Energy and Shenyang Xinbei Thermoelectric'

s engineering and electricity generation businesses, continuing the momentum into the first three quarters of 2017, up 18.87% YoY at RMB1.338bn. Figure 3: Luenmei Quantum'

s revenue by division 2011-2016, hundred million yuan Source: company announcements, Research Dept, CSCI Accordingly, net profit attributable to the parent climbed from RMB82mn in

2011 to RMB177mn in 2015Calbeit with slowing growthCand surged 52.00% YoY to RMB699mn in

2016 before further leaping 56.83% YoY to RMB467mn in 1Q- 3Q17, significantly boosted by high margin new businesses. Figure 4: Luenmei Quantum'

s net profit attributable to the parent 2011-2016, hundred million yuan Figure 5: Luenmei Quantum'

s gross/net profit margin 2011-

2016 Source: Wind, Research Dept, CSCI Source: Wind, Research Dept, CSCI Listed company in-depth [table_page] Luenmei Quantum Please read the disclaimer on the last page. Figure 6: Luenmei Quantum'

s gross margin by division 2011-2016 Figure 7: Net profit after deducting non-recurring items committed and actually delivered by Shenyang Xinbei Thermoelectric and Guohui New Energy 2015-2016, hundred million yuan Source: Wind, Research Dept, CSCI Source: Wind, Research Dept, CSCI Bright prospects for both new and old-line businesses Higher growth opportunities for heat supply as district heating ramps up Figure 8: China heat supply industry development Source: Wind, company announcements, Research Dept, CSCI Heat supply area in Chinese cities and counties grew at a CAGR of 9.53% from 5.52bn sq. m in

2011 to 8.7bn sq. m in 2016, with water heating up from 420,000 MW in

2011 to 623,000 MW in 2016, a CAGR of 8.21%. Listed company in-depth [table_page] Luenmei Quantum Please read the disclaimer on the last page. Figure 9: District heating area in China 2011-2016, hundred million sq. m Figure 10: District heating output in China 2011-2016 Source: Town and Country Construction Statistics Bulletin, Research Dept, CSCI Source: Town and Country Construction Statistics Bulletin, Research Dept, CSCI Domestic investment in urban district heating has been gaining steam since 2003, peaking at RMB81.9bn in

2013 and remaining at high levels ever since (RMB66.3bn in 2016). Looking ahead, ongoing urbanization in China will continue to provide impetus for the heat supply market. Figure 11: Domestic investment in urban district heating 2003-2016 Source: Wind, Research Dept, CSCI District heating is now available in Northeast/North/Northwest China, and with a small but growing number of southern cities calling for or pulling the trigger on district heating, a window of opportunity has been opened. Heat supply area in Shenyang (Liaoning) grew from 234mn sq. m in

2011 to 280mn sq. m in 2015. The city has laid out a long-term plan to build 357mn sq. m of heat supply area. This bodes well for Luenmei Quantum'

s future development. Listed company in-depth [table_page] Luenmei Quantum Please read the disclaimer on the last page. Figure 12: Heat supply area in Shenyang 2011-2016 Figure 13: Percentage of cogeneration/boilers/clean energy in district heating in Shenyang Source: Shenyang Economy and Social Development Statistics Bulletin, Research Dept, CSCI Source: Shenyang Heat Supply Planning 2013-2020, Research Dept, CSCI Cogeneration, boilers and clean energy are expected to generate 60.50%/24.6%/14.90% of district heating in Shenyang by 2020, with clean/renewable heating area reaching 53mn sq. m. The city plans to convert a large number of boiler houses into clean energy projects, which means that cogeneration and clean energy will take away more market shares, further unlocking growth potential for Luenmei Quantum'

s newly acquired businesses. New business potential to be fully unlocked In 2016, heat and steam supply/heat network connection/engineering/electricity generation made RMB1.273bn (up 16.63% YoY)/RMB396mn (up 16.63% YoY)/RMB152mn (up 43.10% YoY)/RMB202mn, accounting for 62%/19%/8%/10% of Luenmei Quantum'

s annual revenue, with heat and steam supply/heat network connection/engineering producing a gross margin of 33.82%/91.04%/73.69%. Figure 14: Luenmei Quantum'

s

2016 revenue by division, hundred million yuan Figure 15: Luenmei Quantum'

s

2016 gross margin by division Source: Wind, Research Dept, CSCI Source: Wind, Research Dept, CSCI Listed company in-depth [table_page] Luenmei Quantum Please read the disclaimer on the last page. Figure 16: Luenmei Quantum'

s heat and steam supply cost composition

2016 Figure 17: Luenmei Quantum'

s heat network connection cost composition

2016 Source: Wind, Research Dept, CSCI Source: Wind, Research Dept, CSCI Luenmei Quantum'

s electricity generation activity includes coal-fired power generation and biomass cogeneration, whose installed capacity/annual power generation capacity currently stand at

49 MW/240mn kWh and

30 MW/210mn kWh, respectively, with biomass cogeneration capacity to be further released to reach the scale of

45 MW/360mn kWh. Figure 18: Luenmei Quantum'

s electricity output/sales volume

2016 Figure 19: Luenmei Quantum'

s electricity sales revenue composition, hundred million yuan Source: company announcements, Research Dept, CSCI Source: company announcements, Research Dept, CSCI Table 1: Luenmei Quantum'

s coal-fired power generation and biomass cogeneration

2016 发电类型 装机容量 (兆瓦) 发电量 (亿千瓦时) 上网量 (亿千瓦时) 售电量 (亿千瓦时) 上网电价 (元/千瓦时) 售电价 (元/千瓦时) 火电

49 2.42 2.05 2.04 0.4527 0.4443 生物质发电

30 2.10 1.91 1.91 0.76 0.76 合计

79 4.52 3.96 3.96 Source: company announcements, Research Dept, CSCI 0.78, 39% 1.24, 61% 火电 生物质发电 Listed company in-depth [table_page] Luenmei Quantum Please read the disclaimer on the last page. Heat supply area set to cross 100mn sq. m Luenmei Quantum'

s heat supply area is estimated to reach 60mn sq. m by the end of 2017, and is hoped to enlarge to 150mn sq. m by 2020, accounting for more than 30% of the total planned heat supply area in downtown Shenyang. Figure 20: Luenmei Quantum'

s average heat supply/heat network connection area 2010-2016 Source: company announcements, Research Dept, CSCI Table 2: Luenmei Quantum subsidiaries'

activities 公司 供热区域 供热技术

2016 年供热面 积(万平方米) 最终规划面积 (万平方米) 浑南热力 浑南新区 集中供热 3000.00 5000.00 沈阳新北 整个沈阳商贸金融开发区、 金廊中心及金廊北 部区域、首府新区、三台子经济区等 新型主、 次、 微区域组合热源方 式热电联产 917.62 960.00 国新新能源 355.12 2,612.86 国惠新能源 于洪新城 水源热泵及梯级加热技术 598.50 1,735.00 沈水湾 沈水湾地区(和平区) 水源热泵及梯级加热技术 165.90 265.00 国润低碳 浑南新城 新型主、 次、 微区域组合热源方 式热电联产 677.12 4,660.00 联美生物 电力产品的主要客户为电网公司 热力蒸汽产品的主要客户为泰州国家医药高 新区驻区生产企业 生物质热电联产 三六六 为客户提供社区服务、供热缴费(维修) 、换 热站多维监控系统委托运维等服务 移动互联网应用、企业信息化 管理、 互联网远程控制、 节能及 管控一体化技术研发及服务. Source: company announcements, Research Dept, CSCI Diversifying towards clean and renewable heating Luenmei Quantum leverages the acquired assets to veer away from solely relying on coal-fired heating towards a diversified heating ........